Investing in Agriculture in the DRC
Since the launch of CDC’s current strategy in 2012, our aim has been to invest where our job creation focus can have the greatest impact: in countries where the private sector is weak and jobs are scarce, and in sectors where growth leads to jobs.
Our recently announced US$18.1m investment into Feronia, an agricultural production and processing business focused on palm oil plantations and arable farming in the Democratic Republic of Congo (DRC), is a clear example of that strategy.
Feronia is a quite remarkable company that is in the process of rebuilding the former Unilever oil palm business in the DRC which was established over 100 years ago in 1911. It provides direct employment for 3,500 people, many of whom are fourth or fifth generation workers, and supports communities of around 45,000 people in some of the poorest parts of the DRC. The company is trying to rebuild a business that suffered a decade of under-investment due to difficulties associated with the internal conflict and instability prior to the acquisition by Feronia in 2009.
So why has CDC chosen to invest here, and why now?
Firstly, the DRC is one of the poorest countries in the world in which approximately 70% of the population live below the poverty line and 75% of the population don’t have enough to eat. Despite the potential to develop a globally competitive agri-business sector in key crops, such as palm oil which is native to West Africa, the country relies on imports for a substantial amount of its food requirements. Feronia, backed by CDC’s investment, aims to unleash some of that potential in order to cater to the large and growing domestic market. Both the palm oil and the rice and arable crops produced by Feronia are consumed solely within Congo.
Secondly, agriculture is a business that plays to the strengths of investors like CDC who can invest with a longer-term time horizon. Palm oil trees take 3-4 years to bear fruit but then produce for two decades, making this an investment that requires patience but has the potential to create a sustainable and profitable business for the long-term. Past economic and political instability has hindered investment in the agricultural industry. CDC’s investment provides long-term capital, to further develop the business so it can make a significant contribution to local employment and its communities for decades to come.
Thirdly, Feronia, with the history of its operations in the DRC, has strong foundations for the making of a great business. The plantations themselves are brownfield and the company is rehabilitating old plantations and replanting old trees, not clearing new land – which is important both commercially (because it reduces the costs of development) and environmentally (because it doesn’t have a negative impact on surrounding forest). This is coupled with the company’s impressive depth of experience in the workforce and senior management team who are almost entirely Congolese and have been with the company for many years, a testament to its 100-year history in the DRC.
We believe that this investment has the potential to achieve significant development impact and deliver good returns, but we also realise that palm oil is a sector not without its critics and controversy. In the case of Feronia, however, the plantations are brownfield, providing food and employment without the potential environmental downsides of a greenfield operation; and the company is committed to achieving RSPO certification. Feronia already provides housing for its staff and their families, operates four hospitals, 17 clinics and 94 schools. Of our US$18.1m investment, a pool of US$3.6m has been ring-fenced to finance the implementation of the company's Environmental and Social Action Plan which is in place to strengthen business standards and enhance community facilities – including workers’ housing, sanitation, schools, medical facilities, health and safety and the implementation of environmental good practices.
This is not an easy place to invest, yet the long-term investment and development potential are considerable. CDC’s long-term investment will allow this company to build on what it has already achieved, generating and sustaining new growth, jobs and investment in the DRC.